Euro-zone banks see new signs of stabilization

ChristopherLawton

FRANKFURT--Euro-zone commercial banks tightened their standards on new loans to businesses last quarter but at a slower pace, the European Central Bank said Thursday, suggesting that declining credit to the private sector, one of main factors holding back the euro-zone economic recovery, may have bottomed out.

The quarterly survey, which covered 133 banks in the euro zone, suggested some stabilization in the banking sector, which has been a source of weakness for the currency bloc since the region's debt crisis began nearly four years ago.

The euro zone relies heavily on bank lending to finance new spending, investment and hiring, but a combination of bank deleveraging and weak demand for credit has held back the economic recovery.

Banks now expect businesses to have easier access to credit and loan demand to pick up in the first three months of this year, according to the survey, indicating that the worst of the euro-zone credit woes may be over.

The net percentage of banks reporting higher lending standards to nonfinancial businesses stood at 2% in the fourth quarter, the ECB said, compared with 5% in the third quarter. The figures are calculated by subtracting the percentage of banks reporting looser standards on new loans from those saying that they have made it tougher for companies and households to obtain them. Banks expect that percentage to "reach nil" in the first quarter of this year.

"The contribution of borrowers' risk and of the general economic outlook to the tightening of bank lending policies decreased further, becoming almost nil and thus reaching levels close to those observed at the beginning of the global financial crisis," the ECB said.

The sluggish economy continued to weigh on business demand for new credit, according to the report. Demand for housing loans and consumer credit declined slightly in the fourth quarter from the third, the ECB said. After reporting weak demand for credit across all loan categories in the fourth quarter, however, the survey participants said loan demand should pick up in the first quarter.

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